Remember that crazy first-quarter market rally? The first quarter of 2012 marked the best first quarter for stocks in 14 years. Some of us, however, were probably a little mystified as to what the all the optimism was all about; the U.S. economic situation might have shown some signs of improvement but still was by no means rosy, and problems in Europe hadn't been fixed, either.
Regardless, many investors found some things to be incredibly bullish about, but today, that uber-bullishness has disappeared from the market's psychology. Now that it's all over, some investors may have the investing equivalent of ticking time bombs in their portfolios: stocks of poorly positioned companies with prices that floated upward during all that bubbly optimism.
It's definitely time to weed out the weaklings. Let's look at a few retail stocks that may have put investors' portfolios in danger.
Don't get burned
Shares of teen retailer Hot Topic
Still, this company faced easy comparisons on a quarter-by-quarter basis, and its first-quarter results were buoyed by carrying merchandise of the hot Hunger Games franchise. Its fortunes over the years have depended very much on getting the trend right and jumping on come-and-go hot properties like Twilight. Last year this time, things were horribly dismal for Hot Topic.
Right now, Hot Topic shares are trading at 20 times forward earnings -- that's insane. Take a far more consistent performer, Buckle
Don't save this Penney
Big problem: Today's J.C. Penny bears absolutely no resemblance to Apple. Despite the company's loss of Steve Jobs, as it stands now, Apple still offers beautifully designed products and nobody has to twist anybody's arm to buy them.
Johnson's plan for Penney -- to ditch splashy, big promotional sales in favor of supposedly consistently low prices -- hasn't done a thing for the retailer, which has to contend with rivals like Target and Wal-Mart, which is no easy feat.
Shares of J.C. Penney have already retreated from their crazy highs after the retailer's quarterly earnings inserted a sharp reality-check pin into the bubbly stock price, but remaining stockholders should still consider ditching. Standard & Poor's recently downgraded its credit rating on J.C. Penney to just one slot above "junk" status.
Department-store doom stock?
What about Dillard's
Although the stock's trading at 11 times forward earnings, let's bear in mind that Dillard's sales growth isn't exactly the kind of growth to write home about. In the company's last full fiscal year, sales increased just 2.3%. Its PEG ratio is 2.06, which looks overpriced, especially if you don't buy that it can outperform analysts' growth expectations (and I don't).
Anybody who's made a bundle on Dillard's should take the money and run.
Hold 'em or fold 'em
The market's recent pullback has been making some investors nervous, but investors should be grateful for the opportunity for some better deals on stocks of high-quality companies.
What should make investors nervous is if they bought into some of the first-quarter rally beneficiaries. It's time to assess whether those stocks really warrant holding after such insane runs.
On the other hand, when it comes to truly high-quality, highly competitive companies, you should hold regardless of the market's ups and downs.
But in cases like the ones I've cited here (and many others, across other industries), be sure to protect your portfolio and sell out -- and move on to greener (and cheaper) pastures.
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Alyce Lomax owns no shares of any of the companies mentioned. The Fool owns shares of Apple. Motley Fool newsletter services have recommended buying shares of Apple, creating a bull call spread position in Apple, and creating a diagonal call position in Wal-Mart Stores. The Motley Fool has a disclosure policy. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.